Income Protection Insurance
Many people think being a financial adviser involves providing advice to clients on investments and saving for retirement. Whilst this is true, perhaps the most important aspect of any adviser’s job is to ensure our clients have suitable protection in place to safeguard their own, or their family’s, lifestyle in the event of long-term ill health or redundancy.
Unfortunately, life rarely tends to run smoothly, and it will inevitably throw various obstacles in our way. For some, it could be catastrophic if regular salary payments were to stop unexpectedly. This can occur for a variety of reasons, such as redundancy or company failure, however one of the biggest causes is long term unexpected illnesses. Unfortunately, gone are the days when many employers used to offer up to six months’ full pay and six months’ half pay. Nowadays benefits tend to be less generous. So, the question we ask is, if you were unable to work for an extended period how long would you be able to maintain your current lifestyle? Clients may have some savings in place but statistics show that the average Brit has sufficient savings to last for just 32 days (Source Moneyfacts).
Unfortunately, figures from the Office of National Statistics also show that in 2016, there were 828 new cancer cases diagnosed each day, 35% of which were in people under the age of 65. In addition, data published by the Department for Work and Pensions states that as many as 960,000 employees were on sick leave for a month or more each year on average between October 2010 and September 2013. We therefore need to understand the impact this could have on our clients and how we can help them to protect themselves against this scenario.
An income protection plan could provide peace of mind that a person’s lifestyle will not be compromised in the event of long-term ill health. It can typically protect up to 60% of current earnings. It is possible to set a deferred period, which means that benefits become payable after that period. This can be tied in to the length of time a salary may be paid in the event of ill health. The longer the deferred period, the cheaper the premium. An income protection plan will then pay out a regular tax-free monthly lump sum until such time as clients are able to return to work or retire, therefore providing peace of mind for the future.
Younger clients may also be worried about the possibility of redundancy and how they would meet their monthly mortgage payment. Perhaps having cover to ensure that they can continue to meet their mortgage payments each month will help to take away some of the worry. This will allow them the comfort of knowing that they should be able to retain the family home. Mortgage Protection Plans are readily available and can often offer cover for a period of up to two years. Hopefully this timeframe will be sufficient to ensure clients can find alternative sources of employment.
We all hope these policies are not required. However, as the old saying goes, to be forewarned is to be forearmed!
The views expressed are those of Thorntons Investments. The contents of the article are solely for information purposes and are not intended as advice.
 Figures provided are for England only